State higher education funding models are the mechanisms through which states allocate public funding to colleges and universities. The models are traditionally based on enrollment but increasingly incorporate performance and outcomes measures.

In recent years, many states have revised their models to include short-term credentials, such as certificates and industry certifications. This reflects growing emphasis on workforce alignment, economic mobility, and rapid reskilling. These updated models often incorporate “credentials of value” frameworks, which tie funding to labor market outcomes such as employment and earnings. Recent federal policy developments, including Workforce Pell, are accelerating these changes by requiring states to define eligible programs, establish quality standards, and align funding with measurable economic returns.

As described by Ithaka S+R, there are significant differences between funding models for public two- and four-year institutions in the United States:

• The three largest revenue sources for four-year institutions are: tuition and fees (20%); government appropriations (18%); sales and services from hospitals (15%).
• Community colleges receive nearly half of their revenue from government appropriations, the majority from state governments. Non-operating grants and contracts, including revenue from Pell grants, represent 18% of total revenues, and tuition and fees comprise an additional 16% of revenue.

Funding models from state governments for public higher education institutions typically include Incremental Funding, Formula Funding, Performance-based Funding (PBF), and State Financial Aid Programs.

See Topic Brief: State Higher Education Funding Models & Short-Term Credentials | Learn & Work Ecosystem Library